Sunday, June 05, 2005

BRETTON FOREST FIRE

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As the Bretton Woods II accord forest fire rages the economic experts try to explain all of this while evading telling the truth. They have to do this because understanding things means accepting WWIII. Namely, the logic of the present economic situation can be resolved only violently.

If the USA was a sane society this would have never happened but alas, the biggest trading partner in the world has gone off the cliff.
From 1996 to 2004, the American current account deficit - which includes the trade deficit as well as net interest and dividend payments - grew to $666 billion from $120 billion, swelling the nation's demand for foreign financing by $546 billion.

The cash has come mostly from what the International Monetary Fund defines as emerging markets or developing countries - nations that have piled up mountains of cash even though most of their citizens are poor. High on the list is China, whose per-capita gross domestic product of $1,300 last year was a thirtieth that of the United States. Others are Russia, where G.D.P. per head was $4,100, and India, where it barely topped $600.

The current accounts of developing countries swung from a deficit of $88 billion in 1996 to a surplus of $336 billion last year - a $424 billion change that has covered some four-fifths of the increase in the deficit of the United States.
Comparing statistics of various countries is futile when one set of countries has many peasants and the other has the remains of what used to be a significant social support system. More realistic numbers would compare relative values, namely, how many people live comfortable middle class lives and how much debt do they carry which shows how much more they can move forward, economically? If one includes debt statistics and subtracts this from the wealth statistics, the USA looks absolutely terrible now. We are so deeply into collective debt, it is staggering to consider. This is why we have a housing bubble! It is the only mechanism that can infuse more debt into the system!
There's nothing inherently wrong with taking money from poor places - it's not as if the United States is stealing it. Developing countries are providing the funds willingly.

But it is rather odd. Conventional economic thought suggests that funds should flow the other way. Capital-rich industrial nations like the United States, where workers already have a large stock of capital goods to work with - like high-tech factories and advanced information technology networks - should be sending money to places rich in labor but with a meager capital stock.

Developing countries, of course, use this money to grow out of poverty, investing in their own factories and schools. And precisely because capital is scarce and labor abundant, money invested in these countries should achieve a higher return.
Heh. Classic Marxian analysis, NYT! I salute you for pointing out the obvious. There is a further lesson here: what these "developing" countries are doing is attracting investment in capitalist enterprises! The money going there is productive money, the money being lent to the USA is tagged for only nonproductive purposes except for the military complex which is swelling in investment costs but producing an inferior product. Namely, thanks to an inability to understand the task at hand and application of the wrong investments, the USA is now significantly weaker, militarily, on nearly every level. An astonishing achievement which has numerous precedents because nearly all empires take this fatal path.
Last year alone, according to the Institute of International Finance, a lobby group of big banks, international reserves of developing countries grew nearly $400 billion.

The good news for the United States is that these forces are unlikely to change direction imminently. In an interconnected world, where investors can move billions across oceans at the touch of a button, these countries have little reason to shift strategies.
These paragraphs prove my point that the USA will start WWIII out of sheer desperation. The monetarist philosophy made up this model of the world that is based on a militarily triumphant USA dictating Bretton Woods agreements every time we slip into the pit of fiscal destruction. In the past, we were dealing with people we defeated in WWII who were scared of America and eager to please America even as they stealthily worked to suck out all and any industry they could from the host nation.

The American attitude that we can suck up all world produce and resources and finances is identical to all other empires who thought they could do the same. We have now made the mistake of pretending that China is a satellite state we can push around which is why Rummy was sent to Asia to scold them and demand they disarm so we can bully them further and note that they pushed back, basically telling Rummy to shut up or put up. Meanwhile, our industrial base rots further and the Chinese base flourishes further.

And the game of pushing down the value of currencies to keep America addicted to cheap money continues.
It was an idea that could barely be whispered inside Europe's corridors of power - might the European Union lose its appetite for the euro?

Launched amid much fanfare in 1999, the single currency was a symbol of European unity, a sign of the continent's re-emergence on the world stage and a challenge to the hegemony of the US dollar.

Six years on, with slow growth and high unemployment bedeviling the economies of some of the euro's most powerful supporters, the whispers of doubt are beginning to grow louder.

Leading politicians in Berlin have expressed concern that the tight rules governing the euro are strangling Germany's economy, by far the biggest in the 12-nation eurozone.

The country's finance minister and central bank president reportedly attended a meeting where the "collapse" of European Monetary Union was discussed.
The ungainly financial system built in Europe is falling apart because they can't game the collapse of Bretton Woods II. All of Europe rejected the older philosophical systems for describing economic powers and latched onto the American monetarist system and got caught in a trap of their own making. Namely, they foolishly allowed their currency to become detached from their social systems and float freely which meant all other governments, gaming the system, drove up the value of the euro until trade with America became nearly impossible. Now desperate governments look for some tool to use to change things and find out they have nothing at all.
The European Central Bank decided to keep rates on hold at 2% for the 24th month running on Thursday, but many economists believe Germany's economy needs a level closer to 1%.
Interest rates in the old days were supposed to give a return on savings that was slightly better than the inflation rate. You can bet, the inflation rate in Europe for essentials is like it is in America: shooting through the roof.

In Europe, much of this is state run so it appears in the form of rising taxes. Rising taxes means less money for savings and the savings situation in Europe is collapsing like it already has in the USA. What is it here? Last I read, below 1%. This is ridiculous and no healthy government should allow this to happen but to "stimulate the economy," all other systems are lowering interest rates to nonexistence levels starting with the number one monetary manipulator in the world: Japan.

For political reasons, Japan's stellar and central role in all this mess is never mentioned. Relative new comers, China, is talked about all the time because they are communists who took the capitalist tools and used it pretty niftily. The use of interest rates to boost economic sectors at will, detached from other currency concerns, is bad fiscal policy. This is putting the cart before the horse. If ladling out money to spend is the sole purpose of interest rates, why charge any at all? Indeed, this seems to be the ultimate goal! Even as credit card companies charge an arm and a leg in interest and fees, national industries and banks feast on negative interest rates below the rate of inflation.

This situation can't continue onwards. Look at the chart here: it shows how things are literally exploding apart. No government should allow this to happen. It is their job to prevent this from happening, not assisting it or worsening it.

But no one listens to me, eh? Heh.
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